Convergys Buys a European Toehold

3/11/2001 7:00 PM Eastern

By: MIKE FARRELL

Cable-billing vendor Convergys Corp. swung a deal last week to acquire a British software developer for $692 million in stock, providing a foothold in Europe.

The company said Tuesday that it would issue 17.6 million shares of stock for all of the outstanding shares of Cambridge-based Geneva Technology Ltd. The deal is worth about $692 million based on Convergys' March 5 closing price of $39.35 per share.

Geneva Technology, which makes billing software for utilities and telecommunications, electronic-commerce and online-service providers, will become a wholly owned subsidiary of Convergys once the deal is closed, likely in April.

Geneva chairman Steven Edwards will become senior technical adviser to the new company and CEO Stephen Thomas will be president of the Geneva business unit.

Convergys has had success in tapping into the U.S. market: It claims to control 30 percent of cable billing in the U.S with customers like Comcast Corp., Cox Communications Inc. and Time Warner Cable.

Although European business has been sporadic at best, Convergys chairman Jim Orr said that's expected to change dramatically.

"If you look at the market in total, in Europe there will be more system changes in the next three to five years than have occurred in the last 15 years," Orr said in a conference call with analysts. "It's a much bigger opportunity."

Geneva, with its core product of the same name, also brings some heavy-hitting clients to the merger-British Sky Broadcasting, NTL Inc. and Telewest Communications plc-which could help Convergys gain a big chunk of new business.

Orr said Geneva's software product would be integrated into existing Convergys software or offered to customers in a bundled package.

The deal also gives Convergys access to markets it may not have been able to tap into in the past, particularly on the lower end. Though Convergys' software has been targeted mainly at large companies, Geneva gives the vendor access to smaller firms, such as competitive local-exchange carriers.

Convergys, which tallied $2.2 billion in 2000 sales, expects the merger to add about $70 million in revenue during 2001. That's projected to grow to $125 million in 2002 and $210 million in 2003. But the deal will cut into cash earnings per share.

Including cost synergies, the deal would dilute cash earnings per share by 11 cents in 2001 and by 5 cents in 2002, said Convergys chief financial officer Steven Rolls. Excluding those synergies, the impact on cash EPS would rise to 15 cents and 11 cents, respectively.

Roll said those synergies-about $15 million-would come mainly from reduced overhead and not a smaller head count.

Convergys expects its employment rolls to rise to about 2,600 workers after it consumes Geneva.

Convergys declined by 83 cents per share on March 6 to close at $38.52.